Weekend reflections

Weekend Reflections is on again. Please comment on any topic of interest (civilised discussion and no coarse language, please). Feel free to put in contributions more lengthy than for the Monday Message Board or standard comments.

Despite the classical feel to the Liberals economics cloth, namely their Ricardian views on wages and the economy I am always struck by the fact that they never accept the role of Keynes in their good luck, namely, that the greatest splurge in public spending ever, namely China, saved us and many other countries from the zero interest rate demons of deflation and depression. Now we will have to see if Malthus was right as well. Good ideas never go away.

I just finished Milton Friedman’s “Capitalism and Freedom”. My first economics book. [BTW, Mike Hart, Friedman has a fair bit to say about Keynesian policies – it would be interesting to apply his analysis to the Chinese situation. I am not sure Chinese policies qualify for the Keynesian multiplier effect, since my understanding is that most of the growth in China is due to efficiency gains caused by the increase in the size of the private sector, not pump-priming through govt expenditure]

A remarkable book. I felt like most of it could have been written today, not 45 years ago. The extent to which his ideas and analyses are now part of the modern zeitgeist is testament to his clarity of thought (although I don’t think he was correct on everything – eg his arguments against government provision of national parks are based solely on financial and utilitarian considerations and completely ignore the unique environmental character national parks are usually established to protect).

So now I feel like I have been missing out all these years.

Does anyone have any recommendations for other economics books of a similar calibre? Think of someone with a strong math background but no formal education in economics attempting to reach the forefront of (at least the basic foundations of) modern economics in the least possible time. Alternatively, if you were forced to preserve our economic understanding for a future generation, which 5 or 10 (or 20?) books or academic publications would you choose?

As Tom Engelhardt notes at tomdispatch.com, the court trying Saddam Hussein has announced it will deliver verdict and sentence forty-eight hours before Americans go to the polls. The last time Bush’s Iraq policy was up in the polls was the killing of Zarqawi. It looks like a death sentence for the old despot will be used to try to get a blip in support for the otherwise terminally discredited Republicans in Congress. I don’t suppose Iraqis ever imagined proceedings to be more than a show trial, so this confirmation of its status will come as no surprise.

I wonder if we’ll see a ‘leaked’ video of the execution? A snuff flick starring the humiliated bogey man would appeal to the barbarous tastes of the American right, methinks.

Proust, I have taken the a rather broad view of the Chinese economy namely the Party is still very much in control and they could shut it down tomorrow if they wanted to, do not be fooled by the image of unfettered capitalism, it is unfettered cronyism with a capitalist face (with a CCP mindset and view underneath). I have also taken liberty with the notion of globalism to suggest the Chinese have in effect taken their hands of the treasury to spend, spend, spend and I might add to good effect. Take out the China effect on ours and every one else’s economies and see what you get.

I would also highly recommend a read or revisit to Keynes “General Theory’ it gets better as I get older, no wonder it is regarded as one of the most subversive texts of all time, the interesting point, despite his very technical demolition of neo-classical economics and the maze of modern economic technical theory, how these old and quite foolish economic ideas lurk in the subconscious of our current economically illiterate politicians. Even the original Henry Ford understood that if you want people to spend more pay them more. Borrowed money is not wealth.

On a lighter note had an interesting personal discussion today with a climate bod from a well known commonwealth scientific body, seems those 2050 forecasts for climate change may actually be arriving early.

“Does anyone have any recommendations for other economics books of a similar calibre? Think of someone with a strong math background but no formal education in economics attempting to reach the forefront of (at least the basic foundations of) modern economics in the least possible time. ”

I’d be happy to try to help. However, I’d like to first ask a question:

Given your reading of Milton Friedman’s “Capitalism and Freedom”, what do you think is the fundamental research question of Economics?

Given your reading of Milton Friedmanâ€™s â€œCapitalism and Freedomâ€?, what do you think is the fundamental research question of Economics?

Well, I certainly wouldn’t presume to have much of an idea from reading just one book. Economics being the way it is, I suspect “the fundamental research question of Economics” is more a matter of taste than anything else.

However, since finishing Friedman I have been noodling a little on the web. At least insofar as being able to make predictions goes, I like the GEM (General Equilibrium Model) approach. Seems to me to rely on the least number of assumptions.

I like Friedman’s book because it provides very clear analysis of how most restrictions on our individual freedom make us worse off overall – something I have always felt but never really saw reflected in the public discourse (particularly in Australia).

Proust, my approach is to first know where we are and how we got here (so we can learn from others’ mistakes, etc), as economics is not known as the “dismal science” for nothing.

For a snapshot of where we are (or have been) I would recommend the Fortune Encyclopedia Of Economics, edited by David R. Henderson (mine is from Time Inc/Warner books NY, 1993). A single tome with 700+ pgs. in easy to read chapters, plus extra bios and a list of Nobels, etc. from basic to quite detailed, but easy to jump around and with an good overview of different schools of thought.

Next, a must read: “Post-Capitalist Society” by Peter F. Drucker, not only an economics book, but also a rough management/organisational guide to the foggy terrain ahead… It focuses on the “knowledge” challenges ahead for organisations/corporations/community and society. Something even our government and the lame opposition seem to be finally waking up to!

More recent nitty gritty economic books seem way too narrow, focusing on specific criticisms or “research questions” and no long economic context or the big picture.

Is most of this still being worked out? Please keep more suggestions coming! Especially more recent stuff

Since he supports the American President in so many things, including in the legality and appropriateness of the GuantÃ¡namo Bay detainment camp and the methods used there, I wonder whether he also supports the new “US Military Commissions Act”, the compromise act which now authorises torture under another name by simply redefining Common Article 3 of the Geneva Convention.

Is the Prime Minister now sanguine about the use of torture (by any name). If he is comfortable for the CIA to use the now allowable methods, would he be comfortable for those methods to be used on Australian soldiers by, say, the Taliban, or by Al Qaeda operatives? Is he comfortable for them to be used on other Australian citizens, such as David Hicks? Would he be comfoprtable for the approved methods to be used on his own children?

” Take any of the “alternative” methods that Bush wants to use on U.S. detainees and imagine someone using those methods on your son or daughter. If the bad guys captured your son and tossed him, naked, into a cell kept at a temperature just slightly higher than an average refrigerator, then repeatedly doused him with ice water to induce hypothermia, would that be OK? What if they shackled him to a wall for days so he couldn’t sit or lie down without hanging his whole body weight on his arms? What if they threatened to rape and kill his wife, or pretended they were burying him alive? What if they did all these things by turns? Would you have any problem deciding that these methods are cruel? ”

All of these methods, including also “partial drowning” are now allowed under the new law promoted by John Howard’s friend. Does Mr Howard stand shoulder to shoulder with George W. Bush on this, and embrace such torture methods? If so, does he embrace them if applied TO Australian Citizens? Does he therefore embrace them for use BY Australian law enforcement authorities against both Australians and aliens?

If he believes they have a legitimate place in the “war on terror”, when can we expect to sight the drafts of the new bill approving them for use by Australian authorities?

Wiki also turns out to have a lot of information, although a little patchy.

So far my picture is thus:

– Left to their own devices, perfect markets will be Pareto efficient (first fundamental welfare theorem, although this is virtually a tautology once you write down the definitions).

– There are lots of Pareto-efficient soutions, and you can find them all by lump-sum redistributions followed by normal market behaviour (second fundamental welfare theorem – not as obviously true as the first theorem IMO)

– Perfect markets reach instantaneous equilibrium, but no-one can make abnormal profits in a perfect market, where “normal” profits are those made after accounting for capital investment and risk.

In fact, we don’t want perfect markets since that implies no incentive to innovate (number 4 kills innovation incentive).

I suspect most markets are reasonably good on 2 and 3 (if products differ sufficiently you’d split the market into a submarket for each product. obviously you can’t do this if there is a continuous “quality” parameter that affects the desirability of the product, but you can no doubt model that too)

1 sometimes breaks down on the producer side (monopolies and oligopolies)

5 usually breaks down. Sometimes for good reasons (eg customer loyalty) and sometimes for bad (collusive behaviour to keep out competitors). Sometimes there is no way around it (eg natural network effects leading to winner-take-all outcomes. think YouTube).